DALLAS — You might think the people buckling down to save for retirement would be the older workers. But adults under 40 (people born 1981-1996) are leading the pack in a couple of important ways.
According to the 2023 Natixis Defined Contribution Plan Participant Survey, adults under 40 have been contributing an average of 16.3% to their workplace retirement plans, compared to 9.7% among Generation X workers (people born 1965-1980) and the 9.5% being contributed by Baby Boomers (people born 1946-1964).
The survey also suggested that all age groups need to double down on what they are setting aside in their workplace retirement programs, because these are the median amounts each generation has saved in their plans: $32,000 (adults under 40), $74,000 (Gen X), and $120,000 (Boomers).
Another positive note in the survey regarding adults under 40: On average, they started contributing to their employer sponsored retirement plans at the age of 27. That’s much younger than the starting age for Gen Xers (at 33 years old) and Baby Boomers (at 38 years old). In fairness, those types of plans may have been more novel and less understood when workers in those generations were younger.
Catch-up contributions for workers 50+
But workers who are older than 50 can make up some ground with the catch-up. There is a cap on how much any worker can contribute to a plan like a 401(k). This year it’s $22,500. But if you are 50 or older, you can make additional “catch up” contributions up to $7,500.
And a new federal rule requiring workers to pay taxes on the catch-up contributions was recently delayed, so this year and in 2024 and 2025, you can make those catch-up contributions from your paycheck before taxes are taken out. In total, workers who are 50 or older can set aside up to $30,000 this year in their workplace retirement account tax free.
Perhaps not surprisingly, Vanguard finds that only about 16% of workers 50+ take advantage of catch-up contributions, and it is mainly the higher paid employees who do. If you can afford it, the extra catch-up could pay off big.
T. Rowe Price found that a saver who added the extra $7,500 each year from the age of 50 to 65 could see their retirement savings increase $202,000 more than a person who did not add catch-up contributions.
Ranking the robo-advisors
Outside of workplace retirement plans, many people interested in investing are not sure where to invest their money. That is part of the reason that robo-advisors have become popular. With those, you commit money to an account, like an IRA or Roth IRA, for example. You typically answer questions about your age and your risk tolerance or investing goals, and a computer program runs the algorithms to do the investing for you.
Condor Capital Management has ranked the robos again. And at the top of the heap in their rankings for the second quarter of 2023 are the robo programs of some familiar names like Schwab, Merrill Edge, Fidelity Go, Wealthfront, Vanguard, Betterment and SoFi. The overall scores were based on nine different metrics, including the one that matters most to many investors: Performance. How did they do?
As of the middle of 2023, many of them had grown between 7% and 11%. That is much less than the overall performance of the NASDAQ in that time period (up about 30%). It is also less than the returns on the broader S&P 500 for the first half of 2023 (up about 16%). But the gains easily outpaced the DOW 30 (which rose almost 4% in the first half of 2023).